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Companhia Siderurgica Posts Q3 Loss on Weak Revenues

Brazilian steel maker Companhia Siderurgica Nacional (SID) or CSN’s third-quarter 2014 results slipped into losses, amounting to R$250.4 million (US$110.3 million). This compares with earnings of R$502.9 million (US$207 million) recorded in the year-ago quarter.

Loss per share was R$0.18 or approximately 8 cents per American Depository Receipt (:ADR).


Companhia Siderurgica Nacional generated net revenue of R$3,883 million (US$1,710.6 million), down 16.7% year over year. The top line was adversely impacted by lower revenues from mining operations.

Of the total revenue, roughly 64% were generated from the domestic markets while the rest was sourced from international operations.

Crude steel production was around 1.30 million tons, up 7% sequentially while rolled steel production was flat at 1.1 million tons. Steel sales volume declined 17% year over year to roughly 1.3 million tons, of which domestic sales accounted for 72%, overseas subsidiaries about 25% and direct exports around 3%. Iron ore sales were up 1% year over year to 7.7 million tons.

Steel revenues, comprising 64.9% of net revenues, declined 12.8% year over year. Revenues from the Mining segment dropped 44.5%, accounting for 21.3% of net revenue.

Companhia Siderurgica Nacional's Logistics segment contributed 8.7% to net revenue, increasing 10.7% year over year. Cement revenues rose 14.3% and represented 2.8% of net revenue. Revenues from the Energy segment, soaring 76.4% year over year, accounted for 2.3% of net revenue.


Companhia Siderurgica Nacional’s cost of goods sold decreased 10.7% year over year, representing 75% of net revenues versus 69.9% in the year-ago quarter. Lower revenues more than offset the decline in cost of goods sold, leading to a 30.8% fall in gross profit. Gross margin came in at 25% as against 30% in the year-ago quarter.

As a percentage of net revenue, selling expenses increased 240 basis points (bps) year over year, while general and administrative expenses increased 60 bps over the same time frame.

Adjusted earnings before interest, taxes, depreciation and amortization (:EBITDA) fell 41% year over year to R$977 million (US$430.4 million) with a margin of 25.2% compared with 35.4% in the prior-year quarter. Companhia Siderurgica Nacional's high debt levels led to 58.2% year-over-year increase in net financial expense, amounting to R$944.5 million (US$416.1 million).

Balance Sheet

Exiting third-quarter 2014, Companhia Siderurgica Nacional had cash and cash equivalents of R$8,971.4 million (US$3,691.9 million), down compared with R$9,020 million (US$4,100 million) in the preceding quarter. Loans, financing and debentures (net of current portion) grew 4.3% sequentially to R$25,061.1 million (US$10,313.2 million).

Cash Flow

In the third quarter, Companhia Siderurgica Nacional generated net cash of R$183.9 million (US$81 million), an improvement over R$159.7 million (US$65.7 million) used in the preceding quarter. Capital spending totaled R$510.6 million (US$224.9 million), up 5.6% sequentially.

With a market capitalization of $3.7 billion, Companhia Siderurgica Nacional presently carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the steel industry include United States Steel Corp. (X), Mechel OAO (MTL) and Nucor Corporation (NUE). While United States Steel sports a Zacks Rank #1 (Strong Buy), both Mechel OAO and Nucor Corporation carry a Zacks Rank #2 (Buy).

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